Groupon Sharpens Focus on Social Shopping with Mertado Deal

Groupon’s (NASDAQ:GRPN) decision to buy another start-up Mertado highlights the pressure it faces from online retail giants Amazon (NASDAQ:AMZN) for its product-based deals. ^[1] Mertado, which provides an online shopping platform for retail products, would integrate fully into Groupon’s online retail business, Groupon Goods. The daily deal giant has been investing heavily in diversifying its offerings given the intense competition in its flagship daily deal segment.

See our full analysis for Groupon

Expect Revenue Upside for Groupon Goods, But Margin Pressures Will Persist

Groupon’s reliance on new products to drive growth has been on since Q2 2011, when it launched its location-based deal finder Groupon NOW. Unfortunately, Groupon NOW and many similar ventures like GrouponLive have failed to make significant headaways, with the former contributing just around 1% to Groupon’s overall value.

Having said that, Groupon Goods has seen robust gross billings growth so far. According to business intelligence site Yipit, gross billings for Groupon Goods grew by more than 50% in November 2011, compared to the 6% growth in Groupon’s total North American gross billings. ^[2] With the Mertado acquisition, Groupon Goods will look to get more consumers and technologies that enable better personalization for online retail. However, we expect that competition from online retail giants like Amazon and eBay will continue to reduce take rates for Groupon.

We recently launched coverage of Groupon with a $13 price estimate. For now, we have taken Groupon Goods as part of Groupon’s deal business itself. Refer our note on why Groupon’s valuation has fluctuated significantly over the past 2 years.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. Groupon Buys Social Shopping Platform Mertado To Bolster Groupon Goods, TechCrunch, 20th Jan 2012 [↩]
2. Groupon Grows 6% in November Despite Thanksgiving Dropoff, Yipit Blog, 4th Jan 2012 [↩]